The Dose

Welcome to The Dose, which tackles the finances behind local health care and life sciences and points to the most interesting national analysis. Your host is J.K. Wall.

Health Care & Life Sciences / Life Science & Biotech

Overbuilt, overstaffed, top heavy, hospitals ripe for cuts

October 3, 2013

The anger has been palpable among IBJ readers commenting on our recent stories about Indiana University Health's layoffs, which have affected a whopping 935 jobs.

Many commenters blamed hospital executives for overbuilding and overstaffing in recent years, and for paying themselves massive sums in the process. The numbers make it hard to argue with those sentiments.

I've covered the aggressive building by Indianapolis-area hospitals many times, including here.

But it's worth taking a look at hospitals' hiring and executive pay.

From July 2007, before the recession hit, until July 2013, Indiana hospitals added 12,000 employees, to bring their total payrolls to 117,100 workers, according to data from the Bureau of Labor Statistics. That marked growth of 11.4 percent. Physician offices and nursing organizations, many of which are also owned by hospital systems, saw slightly slower but still significant employment growth.

During that same time, all private employers in Indiana cut their workforces sharply and as of July 2013, were still about 30,000 jobs short of their employment levels in July 2007.

"Have they been THAT overstaffed all these years," wrote a reader about Indiana University Health and St. Vincent Health, which cut about 865 jobs at the end of June. "If so ... that partially explains why our medical bills are so high. How was this overstaffing allowed to happen?"

Good question. I don't know the precise answer, but I do know hospitals have been slow to find ways to treat patients with fewer people—mainly because there was no financial reward for doing so. I'll have a story in Saturday's IBJ explaining how this is beginning to change.

And what about executive pay? It's been going up and up. Part of that is due to the fact that all the Indianapolis-area hospitals have become much larger and more complex organizations, as they have acquired physician practices and smaller hospials.

The Indianapolis Star did an interesting analysis last year showing that the pay of the CEOs of Indianapolis-area hospital systems rose as much as 53 percent from 2008 to 2010. 

From 2008 to 2011, compensation for IU Health CEO Dan Evans rose from $1.8 million to $2.3 million, according to the most recent IU Health reports to the Internal Revenue Service.

"How much of a cut is Dan Evans taking?" asked another IBJ reader. "Or, for that matter, are any other IU Health execs giving up something? I'd bet a billion bed pans they're not giving up a dime."

I'm sympathetic to this position. It would endgeneder lots of good will if execs took a pay cut to share the pain and spare a few people their jobs.

But no one should get the idea that cutting executive pay could have offset all these job cuts. Consider that even if Dan Evans took a 20-percent cut in his compensation—or $460,000 a year—that still would have preserved only about six to eight jobs at IU Health. If you're looking for mistakes by the hospitals, overbuilding and overstaffing are better candidates than excessive executive pay.

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